Senate Leaders Agree on 2-Month Extension of Payroll Tax Cut

WASHINGTON — Senate leaders said on Friday night that they had reached a deal that would extend a payroll tax cut for two months — falling far short of the yearlong extension they had been seeking. The agreement would also speed the decision process for the construction of an oil pipeline from Canada to the Gulf Coast, a provision necessary to win over Republicans who opposed the tax break.

A senior administration officials said the deal announced Friday night met the test that President Obama had set out: that Congress would not go home without preventing a tax increase on 160 million Americans.

However, rank-and-file members of the House said on Friday that they were opposed to a short-term extension. Approval in that chamber, even with the provision on the Keystone XL pipeline, is no sure thing.

The agreement, on which a Senate vote is expected Saturday, would also allow jobless workers to continue receiving unemployment insurance benefits as permitted by current law for two months. For the same period, there would be no cut or increase in fees paid to doctors for treating Medicare patients. The cost of these items will be fully paid for, Congressional aides said.

Administration officials indicated that Mr. Obama would not veto the legislation even though the Keystone XL pipeline provision remained in the bill. They said they believed that the president could still delay the pipeline until environmental stipulations were met. “This provision does not mandate it,” the administration official said, “it simply speeds up the review process for a decision.”

Nonetheless, environmental advocates were unhappy. “We’re stunned that the president would say one week that he’s going to veto any provision that includes Keystone, and then cave the next week,” said Bill McKibben, founder of 350.org, an environmental group opposed to the pipeline. “Where I come from, people don’t do that, but I guess this is Washington.”

News of the deal came as the 112th Congress lurched toward the end of its tumultuous first session. Earlier on Friday, the House finished off one of its last major pieces of business for the year, voting 296 to 121 to approve a sweeping $1 trillion spending bill that would keep the government funded through Sept. 30. The Senate is set to approve it Saturday.

But even as House members raced for the airports, they knew that they might have to return next week to deal with extending the 2 percentage-point cut in the Social Security payroll tax. If Congress does nothing, the rate will revert to 6.2 percent in January.

As wrangling over the tax has continued, Republican leaders have sought to build support for the measure by adding conservative policy provisions, which have replaced earmarks as the legislative sweetener for Republican lawmakers in a Congress where fundamental differences about the role of government in American life deeply divide the parties.

That conflict, which mirrors the broader political dynamic across the country, is unlikely to ebb in the second session, as Republicans labor to make life more difficult for President Obama and Democrats struggle to hold the White House and the Senate.

“It’s a presidential year and it may even get worse,” said Representative Jeff Fortenberry of Nebraska, a Republican who has served since 2005. “My hope is that the institution can regain some stature in the eyes of the people,” he said. “Sadly next year, because of the dynamics of politics, because of the dynamic of the media because of the dynamics of money, it’s likely to be more difficult.”

Photo

Members of the House leaving the Capitol on Friday after passing a year-end $1 trillion spending bill that finances the government through Sept. 30.Credit
J. Scott Applewhite/Associated Press

Senator Harry Reid, the Democratic leader, pledged Friday night to continue to push for a full-year extension of the payroll tax cut and to paint Republicans as favoring a tax increase for the middle class.

The omnibus spending bill approved by the House on Friday provides more than $900 billion for the Defense Department, Homeland Security, public works, foreign aid, veterans benefits and a wide range of health, education and labor programs in the 2012 fiscal year.

House and Senate negotiators resolved their last dispute by eliminating proposals restricting Cuban-Americans’ travel to their homeland. The White House took a firm stand against the restrictions, saying Congress should not legislate foreign policy in a spending bill.

For the regular operations of the Defense Department, Congress provided $518 billion, an increase of $5 billion over last year’s level. For the wars in Iraq and Afghanistan, it provided $115 billion, down from $158 billion last year. Military personnel would receive a 1.6 percent pay raise.

The bill would provide $1.8 billion, the same as last year, for renewable energy technology. But it would end the program that guaranteed a loan for Solyndra, the failed solar equipment company.

The bill would require federal agencies to conduct a cost-benefit analysis of proposed federal guidelines for the marketing of food to children.

Margo G. Wootan, director of nutrition policy at the Center for Science in the Public Interest, a research and advocacy group, said, “This will not kill, but will delay, the guidelines, which are awaiting final approval at the White House.”

The bill stipulates that no federal money can be used to “implement or enforce” new energy efficiency standards for light bulbs. Republicans said the government had no business telling people what sort of light bulbs they could use.

The bill would prohibit the District of Columbia from using federal or local tax money to pay for abortions for low-income women under Medicaid.

Under the bill, the National Institutes of Health would get $30.7 billion, which is $299 million above last year’s level and $758 million below the president’s request.

The bill provides $3.5 billion for the Low Income Home Energy Assistance Program — $1.2 billion less than last year but $909 million more than the president requested.

The measure also cuts President Obama’s Race to the Top education initiative by more than 20 percent, to $550 million, from $698 million. The bill says health officials cannot use federal money to advocate gun control or to carry out needle exchange programs, intended to curb the spread of AIDS.

Helene Cooper contributed reporting.

A version of this article appears in print on December 17, 2011, on page A1 of the New York edition with the headline: Senate in Deal To Extend Cuts In Payroll Tax. Order Reprints|Today's Paper|Subscribe